(a) How might Gerard Appliances use its accounts receivable and notes receivable to raise the cash it needs? (b) What are its prospects for raising the needed cash?
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- BayFish Company currently uses maximum trade credit by not taking discounts on its purchases. Company is planning to borrow from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of this policy change on its net income. The standard industry credit terms offered by all its suppliers are 2/15, net 40 days, and BayFish pays in 40 days. Its net purchases are $10,000 per day, using a 365-day year. The interest rate on the notes payable is 8% percent and the firm’s tax rate is 40 percent. If the firm implements the plan, what is the expected change in BayFish’s net income? (Hint: Use Incremental approach table)Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $12,245, and they can borrow the money from Bank B, which has offered to lend the firm $12,245 for 1 months at an APR of 13% (compounded). The loan has a 1.54% loan origination fee. What would be the cost for Company A if they decide to borrow from Bank B?Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 7.20 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities. Activity Cost Driver Cost Driver Volume Using ATM Number of uses $ 4,500,000 6,000,000 uses Visiting branch Number of visits 2,700,000 450,000 visits Processing transaction Number of transactions 19,800,000 240,000,000 transactions Managing functions Total deposits 18,000,000 $ 1,125,000,000 in deposits Total overhead $ 45,000,000 Data on two representative customers follow. Customer A Customer B ATM uses 100 200 Branch visits 5 20 Number of transactions 40 1,500…
- Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 6.60 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities. Activity Cost Driver Cost Driver Volume Using ATM Number of use $3,600,000 $4,800,000 uses Visiting branch Number of visits 2,160,000 360,000 visits Processing transaction Number of transactions 15,840,000 192,000,000 transactions Managing functions Total deposits…Humanity International sells medical and food supplies to those in need in underdeveloped countries. Customers in these countries are often very poor and must purchase items on account. At the end of 2021, total accounts receivable equal $1,300,000. The company understands that it’s dealing with high credit risk clients. These countries are often in the middle of a financial crisis, civil war, severe drought, or some other difficult circumstance. Because of this, Humanity International typically estimates the percentage of uncollectible accounts to be 35% (= $455,000). Actual write-offs in 2022 total only $300,000, which means that the company significantly overestimated uncollectible accounts in 2021. It appears that efforts by the International Monetary Fund (IMF) and the United Nations (UN), and a mild winter mixed with adequate spring rains, have provided for more stable economic conditions than were expected, helping customers to pay on their accounts.Required:1. Record the…a. Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year. Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs. PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge. Optimal Cash Amount = 29382.53 PRI’s financial managers have not been following the Baumol Model. Instead, they have been transferring cash from marketable securities less frequently, namely, transferring cash every three weeks. What total cash cost including holding costs and transactions costs could PRI save by transferring the optimal cash amount C* rather than this larger transfer amount?
- No More Books Corporation has an agreement with Floyd Bank, whereby the bank handles $5.2 million in collections a day and requires a $520,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.6 million of collections a day, and each requires a compensating balance of $275,000. No More Books' financial management expects that collections will be accelerated by one day if the eastern region is divided. a. What is the NPV of accepting the system? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) ×…A credit card company is studying its late fee policy. The company has two types of customers: revolvers and transactors. It has 30% revolvers and 70% transactors. The 21. balance carried by each type of customer is shown below: Balance, $ 2000 4000 6000 Revolver probability 0.2 0.3 0.5 Transactor probability 0.5 0.4 0.1 When late fees are assessed, customers call and request a reversal. The policy is to allow revolvers to get a refund of the fees, and to deny refunds to transactors. When denied refunds, 30% of accounts close their accounts within a year, while 20% of the others whose fees were returned also close their accounts (perhaps they are still unhappy). If you start with 20 accounts (all of whom are assessed late fees), simulate the total balance at the end of the year.Whitmer Inc. sells to customers all over the U.S., and all receipts come in to its headquarters in New York City. The firm's average accounts receivable balance is $5.0 million, and they are financed by a bank loan at a 9.50% annual interest rate. The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%. If the annual cost of the system is $17,000, what pre-tax net annual savings would be realized? a. $78,000 b. $74,600 c. $95,000 d. $112,000 e. $81,400
- No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $3.4 million in collections per day and requires a $320,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.7 million of collections per day, and each requires a compensating balance of $175,000. No More Books’s financial management expects that collections will be accelerated by one day if the eastern region is divided. a. What is the NPV of accepting the system? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually.No More Books Corporation has an agreement with Floyd Bank, whereby the bank handles $4.7 million in collections a day and requires a $470,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.35 million of collections a day, and each requires a compensating balance of $245,000. No More Books’ financial management expects that collections will be accelerated by one day if the eastern region is divided. a. What is the NPV of accepting the system? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What will be the annual net savings? Assume that the T-bill rate is 2.6 percent annually. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g.,…A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its negotiated financing. A. Calculate the cash conversion cycle before the lockbox system B. Calculate the cash conversion cycle after the lockbox system C.
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